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What you don't know about candlesticks

One famous technical analyst wrote that continuations perform better than reversals. That would make sense, since it is easier for price to swim with the tide than against it. There is just one problem: That’s wrong. If you’re a serious candlestick player, then you’ll want to know when candles work best. Since we know that reversals work better than continuations, make sure that the breakout direction agrees with the primary trend. For example, a bullish harami requires that the price trend downward into the candlestick pattern. Let’s assume that you’re expecting an upward breakout. If the primary trend is upward and the harami appears in a downward retrace, you’re set. The upward breakout will join with the existing price trend and the current will carry the stock upward. Read on to learn more...

Article copyright 2012 by Technical Analysis Inc. Reprinted from the March 2011 issue with permission from Stocks & Commodities Magazine.

The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.

Technical analysis focuses on market action – specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering what stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. Past performance is no guarantee of future results.

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